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Salesforce Reinforces that the Cloud is Just Fine

Posted on Monday, Feb 29th 2016

According to a Bernstein Research report, only 8% of the $1.6 trillion global IT spend is spent on cloud computing technologies. But cloud is the fastest growing segment within IT. The researcher claims that in 2015, $128 billion or 60% of IT spending growth was spent on cloud technologies. By 2018, it predicts that all of IT spending growth dollars will be attributed to the cloud. Recent results by Amazon and Microsoft have shown the importance of cloud technologies. Last week, Salesforce (NYSE: CRM) reported its quarterly results and outlook that continued to prove the dominance of cloud-based offerings. During the quarter, the company signed two nine-figure deals and more than six hundred seven-figure deals across multiple industries – translating to over $1.81 billion in quarterly sales. Clearly, there is no stopping this force.

Salesforce’s Financials

For the final quarter of the year, Salesforce’s revenue grew 25% over the year to $1.81 billion, above analyst projection of $1.79 billion. EPS of $0.19 was in line with the market’s forecast for the quarter.

By segment, revenues from Subscription and Support services grew 25% over the year to $1.68 billion and Professional services, and other revenues were up 28% to $126.7 million.

Salesforce ended the year with revenues growing 24% over the year to $6.67 billion. Net loss reduced from $0.42 per share a year ago to a loss of $0.07 per share for the year.

For the current year, Salesforce expects revenues of $8.08 billion-$8.12 billion with an EPS of $0.99-$1.01. The market was looking for revenues of $8.08 billion and an EPS of $0.99. Salesforce expects to end the current quarter with revenues of $1.885 billion-$1.895 billion and an EPS of $0.23-$0.24. The market had forecast the quarter’s revenues at $1.86 billion and an EPS of $0.21.

Salesforce’s Acquisitions

Till recently, Salesforce had been focused on improving its analytics offerings. Acquisitions made earlier last year were indicative of its focus toward that segment. In the recent quarter though, Salesforce appears to be making a push within the marketing segment. Currently the marketing cloud service is the smallest business within Salesforce’s cloud segment. Recent acquisitions could help increase its contribution to the business.

In December it announced the $360 million acquisition of SteelBrick. SteelBrick offers the Quote-to-Cash software that helps configure price quotes. Quote-to-cash is a suite of backend applications that automates the process of generating quotes, contracts, and billing. It allows the sales team to create customized pricing through a selection of features, components, and add-ons that go into a proposal to the buyer. Prior to the acquisition, Salesforce relied on other partners such as Apttus to provide these services. SteelBrick has a portfolio of over 350 customers including Cloudera, Jive, Marketo, and Nutanix. With the acquisition, Salesforce will be able to add value to its CRM offering.

Last year, Salesforce also acquired a four person start-up MinHash for an undisclosed sum. Founded by Oracle and eBay alumni, MinHash’s services operated like a virtual assistant for marketers. The platform could scan through multiple media resources to identify trends and create marketing campaigns.

But not to leave analytics behind, earlier this month Salesforce announced the acquisition of PredictionIO, a small startup software maker that works on predictive applications. Terms of the deal were not disclosed. PredictionIO makes open source software for machine learning apps and allows developers to build apps for data analytics and predictive work. Salesforce will leverage the acquisition to enhance SalesforceIQ’s machine learning capabilities. It will also add to Salesforce already rapidly growing analytics arsenal to capture the Business Intelligence and Analytics Software Market – a market projected to grow 8% annually to $26.8 billion by the year 2019.

Its stock is currently trading at $69.72 with a market capitalization of $46.29 billion. It touched a 52-week high of $82.90 following its third quarter results announcement in November last year. The recent quarter’s results have helped the stock recover from the 52-week low of $52.60 it had reached earlier this month. The stock had fallen in reaction to the market’s anxiety on weaker results being announced by Tableau Software and LinkedIn that created broad concerns about the state of the Cloud Computing sector.

Clearly, Salesforce has put those concerns to rest.

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